City presses ERG over site agreement

The mayor of Timmins, Dennis Welin, is serving notice that the owners of the ERG Resources (TSE) tailings reclamation operation will have to live up to the terms of a site agreement. The 1987 agreement between ERG and the city called for a $3.5-million letter of credit. The city requested the money in an effort to ensure there would be funds available to make the tailings site aesthetically and environmentally sound in the event ERG ran into financial troubles and could not carry out the work itself.

The city never received the letter of credit but did not force the issue because it felt the Australian parent of ERG, Giant Resources, would act in good faith and provide the letter of credit in due time. Once the project was up and running, city politicians refused to deal with a heavy hand, Welin said, because it could have prompted the company to shut down the operation and throw as many as 300 people out of work.

“We’ve met with ERG’s top people in Timmins, now we’re making arrangements at our request to meet with senior company officials in Toronto,” Welin said.

“We’re attacking this matter from all angles. No matter what takes place, the operator or receivers of that operation are going to have to live up to the site agreement.”

Rick McMullen of the Ontario Ministry of the Environment in Timmins says ERG has complied with ministry conditions so far. But he adds, “There could be a real problem this spring if water patterns are not monitored and dealt with accordingly.”

The ERG gold reclamation project was shut down for the winter in late November and there is speculation it will not resume in the spring because of ERG’s financial difficulties.

ERG and other Canadian assets of Giant Resources are up for sale. ERG’s major creditor, Australian bank Westpac, terminated an 81,800-oz. gold loan late last year. Upon termination, the gold loan was converted into a loan worth about US$33 million.

Giant Resources controls 67.5% of Pamour (TSE), which in turn owns 41.8% of Giant Yellowknife Mines (TSE), 40% of Pamorex Minerals (TSE) and 61.6% of ERG.

In addition to the gold financing loan with Westpac, ERG owes Pamour about $48 million and Giant Resources about $28 million. Westpac is reported not ready to call the loan at this time.

The big concern in Timmins is the unsecured creditors, local contractors who have been left out in the cold by ERG’s financial problems.

One such company, Erocon- Milex Ltd. of Timmins, a land reclamation/temporary manpower operation, says it is owed more than a half-million dollars. Owner Hans Keller pulled his employees off the ERG project last August after several failed attempts at securing late payments from ERG.

Keller said he was repeatedly told by ERG officials there was no money to settle outstanding accounts.

“It’s nothing personal against Erocon,” said Frank Van de Water, ERG’s chief financial officer.

“We’ve got $6.5 million dollars in unpaid bills to unsecured creditors. If we had the $6.5 million we’d probably pay off everyone. But we don’t.

“My guess is that if all of ERG’s assets were sold, there would not be enough to pay off the secured creditors, let alone the unsecured,” Van de Walter said.

The unsecured creditors, who recently met in Timmins with lawyers representing ERG and Westpac, decided against a group bankruptcy proceeding because of the company`s debt load.

However, individual lawsuits remain a possibility. The creditors feel ERG and its associated companies would be loathe to have to open their financial books in court and might prefer a settlement instead.